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What is a fair price for a business?
Like any other product, a business is worth whatever a willing
buyer will pay a seller in a free market. However, the value of
most businesses is determined by what someone can afford to pay
for it. Typically this price will be 2 to 3 times the annual cash
flow of the business after recasting, with a 25 to 50 percent
down payment and a note paid off over 5 to 10 years. If the business
can earn the income you want and make the note payments, then
it is worth the price.
What is Goodwill?
Goodwill is the difference between the total
value of a business and the value of inventory, equipment and
other "hard" assets. Every business has goodwill unless it is
closed down or failing badly. The amount to pay for goodwill depends
on the cash flow of the business and its general attractiveness.
If buyers did not pay for goodwill, sellers might as well sell
off their equipment and close down rather than sell as an
ongoing
business.
What are Discretionary Earnings?
Discretionary earnings are usually defined
as profit before income tax, depreciation, interest and owner's
compensation and other owner benefits. This is the amount of money
the owner has available to pay himself, to invest in additional
equipment, to make the note payments on the business and pay taxes.
Are there tax benefits in buying a business?
Usually you can take a tax deduction for
depreciation on the fair market value of all furniture, fixtures
and equipment at a much faster rate than real estate. The Covenant
Not To Compete and the value of training are tax deductible, frequently
at high levels. Finally, most businesses have deductible expenses
that add to the owner's cash flow. Always discuss tax issues with
a qualified tax professional.
Why not just start my own business?
Government surveys show that over 80% of
new businesses fail in the first three years for reasons such as
poor location, low product quality, under-capitalization and
lack of management skills. This risk can be eliminated by purchasing
a quality business with a proven cash flow.
Why use a Professional Intermediary to help
purchase a business?
Presenting opportunities for your review
allows you to consider situations that you would have an interest
and match your own personal acquisition criteria. Using an Intermediary
also allows for confidentiality during the initial stages of the
buying process. Allowing a professional to lead you through the
steps to buying a business will ultimately give you the peace
of mind that your interests were protected and your investment
well-directed. Choosing an individual who is professionally trained,
has made a full-time commitment to their career, has access to
the largest database on comparable business sales in the world,
and can be trusted to work for your best interest, means you have
chosen a VR Business Intermediary to work with you.
Contact
us for more information.
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